Friday, July 15, 2011

Strategic Reserves? What Are Those?

Oil is at $98.50 this morning — the highest in a month. That release of strategic reserves is working out like gangbusters, eh?

Heck, Barron’s had a cover story a few days ago about oil reaching $150 by next spring. It cited some of the same data we cited four months ago, about “spare capacity” — or lack thereof.“Spare capacity,” we pause to remind you, is the ability of oil producers to jump-start new oil production within 30 days and keep it up for at least 90 days.
According to Morgan Stanley, “spare capacity” will be tapped out in two years... and that’s based on figures before the war in Libya took that nation’s 1.5 million barrels per day offline.

The realities of shrinking spare capacity are becoming more evident by the day. To wit...The International Energy Agency warns that unless OPEC can raise production by 1.5 million barrels a day — about the same as that lost Libyan production — global demand oil demand will start to outrun available supply between now and year-end.
Thus, “If there is not enough supply to match the 89 million barrels of oil the global economy is expected to burn every day,” says former CIBC World Markets chief economist Jeff Rubin, “world oil prices have only one direction to go.”

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